Business owners know that gas prices are historically high, which has made their vehicle costs soar. Fortunately, there is some relief. The IRS upped business travel rates for the last six months of 2022. The tax agency announced an increase in the optional standard mileage rate in the hopes that the increase helps offset vehicle costs for business owners. Taxpayers may use the optional cents-per-mile rate to calculate the deductible costs of operating a vehicle for business. Keep reading to learn more.
Prices and Rates
The average nationwide price of a gallon of unleaded regular gas on June 17 was $5, compared with $3.08 a year earlier, according to the AAA Gas Prices website. A gallon of diesel averaged $5.78 a gallon, compared with $3.21 a year earlier.
With higher prices come increased rates. For the second half of 2022 (July 1–December 31), the standard mileage rate for business travel will be 62.5 cents per mile. This is up from 58.5 cents per mile for the first half of the year (January 1–June 30). There are different standard mileage rates for charitable and medical driving.
Raising the standard mileage rate in the middle of the year is unusual. Normally, the IRS updates the mileage rates once a year at the end of the year for the next calendar year. However, the tax agency explained that “in recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2022.” But while the move is uncommon, it’s not without precedent. The standard mileage rate was increased for the last six months of 2011 and 2008 after gas prices rose significantly.
While fuel costs are a significant factor in the mileage figure, there were other contributing elements. The IRS notes that “other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.”
Two Mileage Options
The optional standard mileage rate is one of two methods a business can use to compute the deductible costs of operating an automobile for business purposes. Taxpayers also have the option of calculating the actual costs of using their vehicles rather than using the standard mileage rate. This may include expenses such as gas, oil, tires, insurance, repairs, licenses, vehicle registration fees and a depreciation allowance for the vehicle.
From a tax standpoint, you may get a larger deduction by tracking the actual expense method than you would with the standard mileage rate. But many taxpayers don’t want to spend time tracking actual costs. Be aware that there are rules that may prevent you from using one method or the other. For example, if a business wants to use the standard mileage rate for a car it leases, the business must use this rate for the entire lease period.
We’re Here to Help
Your business may get a helping hand now that the IRS upped business travel rates for the last half of the year. If you have additional questions about your business’s vehicle expenses, the knowledgeable team at Ramsay & Associates is here to help. Consult with us about your unique circumstances to determine the best course of action.